How is the Red Sea crisis making your TVs, ACs costlier? Key details

Sea freight expenses from China are rising due to a shortage of shipping containers resulting from the Iran-Israel conflicts

There has been a significant increase in logistics costs for large-sized components transported via the Red Sea in the past two months, the Economic Times (ET) reported. Due to a severe lack of shipping containers resulting from the Iran-Israel conflict, sea freight expenses from China are rising.

Consumers are expected to face increased prices for information technology (IT) hardware, TVs, washing machines, and air conditioners transported by sea.

Arjun Bajaj, director of smart TV OEM Videotex, said that the inventory shortages, worsened by disruptions in the Red Sea due to geopolitical tensions between Israel and Iran, are significantly impacting the logistics landscape.

“ Currently, the industry is experiencing an upward trend in container costs, with prices changing every week and expected to rise even further, with no clear timeline for resolution from freight operators. This situation is affecting not only India but also the global supply chain,” he said.

Some 330 large ships, each carrying about 11,000-12,000 containers, are taking a longer route to the Red Sea. This is causing a sudden shortage of containers at Chinese ports since early May, ET said citing Harish Kohli, country head of IT hardware brand Acer.

Logistics for manufacturing large-sized electronic goods typically contribute around 2-3 per cent to overall costs and may be passed on to customers if the situation does not improve in the next two months, he said.

Importers are prioritising larger but less popular 40 ft containers for goods coming from China. The crisis has resulted in liners cancelling contracts, invoking the force majeure clause, leading manufacturers to avail shipping at more expensive spot rates.
 

What is the Red Sea crisis?

Since November, Houthi militias in Yemen have conducted multiple attacks on cargo ships in the Red Sea. The region is the quickest marine route linking Asia with Europe through the Suez Canal has become unsafe. As a result, freighters are compelled to take a longer route around the Cape of Good Hope at Africa’s southern tip.

This detour has increased both the cost and delivery time of shipments, worsening the challenges faced by global trade, which is still recovering from the pandemic, the Russia-Ukraine war, and a global economic slowdown.

The Red Sea, a crucial conduit for 30 per cent of the world's container traffic, is currently experiencing an unprecedented shipping crisis. The recent conflict in West Asia has led to attacks on commercial vessels, significantly reducing maritime activity. As of the end of March 2024, traffic through the Suez Canal and Bab El-Mandeb Strait had decreased by 50 percent, while navigation via the Cape of Good Hope had doubled.

Red Sea crisis' impact on Indian trade

Following these attacks, major cargo shipping lines have ceased operations on this route, and even small feeder vessels have stopped plying these waters. According to media reports, nearly 90 percent of cargo destined for the western hemisphere, either inbound or outbound from India, is now being rerouted around the Cape of Good Hope.

This longer route is used for exports to Europe, the United States East Coast, and North African countries. The remaining 10 percent of Indian cargo is either halted or using alternative transit facilities.

Red Sea crisis to cause 15-20 per cent industry capacity loss: Maersk

Earlier this month, Danish shipping giant Maersk stated that the latest threats of escalation of violence in the Red Sea amid the ongoing Israel-Hamas conflict are likely to hit the shipping industry’s capacity by 15-20 per cent, according to Danish shipper Maersk.

"The knock-on effects of the situation have included bottlenecks and vessel bunching, as well as delays and equipment and capacity shortages. We estimate an industry-wide capacity loss of 15-20% on the Far East to North Europe and Mediterranean market during Q2. We are doing what we can to boost reliability, including sailing faster and adding capacity," the international shipping giant said in an advisory.